Sacramento daily record-union., 1887-08-12
RAILROAD coNsraucr1oN.
tsan Francisco Alta, August 1ith.l

VII hcthOuo vi puilulilS ana equlppllS
railroads, which have given rise to some
diversity of opinion in regard to the legal
! ity and propriety OF those methods. That
our readers may have an opportunity to
Judge the question fairly, we have exam
ined the facts and results of different meth
ods, old and new, with some care, and pro-
pose to lay before the public the result of
our examination and the conclusions which
We have reached.
Without going back to the origin of rail-
road construction, it is sufficient to remind
the intelligent public that until within
few years railroad corporations were
created by special Acts of State Legisla-
lures, or, as in the case of the Union Pa
cific, by Act of Congress. These Acts are
called charters; they are, in fact, contracts
between the State or United States and
the corporators, and, when organized, with
the corporation, subject of course to the
right OF the granting power to alter or re-
peal the charter Act when that power is
expressly reserved, either in the charter it
self or in some general law, organic or
statutory. These charter Acts carefully
defined the powers and prescribed the
privileges of the corporation including its
franchises. They fixed the amount of
capital stock and the number of shares :;
and generally they provide that Commits
sioners, appointed on the Board of Directors
when the corporation is organized, shall
open books for subscription to the capital
stock, fixing an amount which must be
subscribed before the corporation can be-
gin its work of constructing and equipping
its road. The theory was that the road
should be built and equipped with the
money paid in on these subscriptions
Later on in the history of railroad build
ing the charter Acts authorized the corpo-
| ration to mortgage its franchises and prop
erty and issue interest-bearing bonds, TO aid
| In its construction, for the reason that ex-
perience had demonstrated the fact that
| the corporation could not procure enough
money from its stockholders upon their
| subscriptions to complete the work. With
| this additional authority a great many
corporations succeeded in completing their
works, but to the ruin of the stockholders,
for the bondholders soon learned how to
wreck the road by foreclosure proceedings,
cutting off the stockholders and purchas-
ing in the property for the exclusive bene-
fit of a syndicate of bondholders.
| 1t Is a matter of common knowledge that
great majority of the railroads built un-
der this system went into the hands of the
| bondholders without ever having yielded a
cent tothe original promoters of the enter
prise, although they may have paid mill
! ions on their stock subscriptions. This old
method naturally fell into disrepute with
both the Legislatures and the people-with
| the people inasmuch that they refused to
haanpaa hnl1 Il
tions.
During this period new States were be-
| ing formed, new Territories were filling up
with population, all needing and clamor-
ing for railroad facilities. Railroads were
recognized as necessities; they must be
| built, and the States and Congress took
the matter in hand and held out induce
ments to enterprising men to build them,
by granting subsidies in land and money,
and by authorizing municipal corporations,
| counties, cities and towns to aid them by
gifts and by subscriptions to the stock, to
| be paid in money or bonds. Under this
system Congress granted away millions of
| acres of the public domain, not foolishly or
| lavishly, as has so often been charged, but
on business principles the theory, which
proved to be true, being that by giving one
! odd section to aid in constructing a rail
road, every even section was enhanced to
double the Government price. So that the
Government not only got full value for its
land but was benefited in various ways
| But one OF the most singular facts con-
| nected with railroad construction is that a
community without a railroad will offer
great inducements and assume heavy bur-
| dens to encourage the building of the road.
but so soon as the road is built and the
| community has gotten what it so much
needed, and to procure which it so much
| exerted itself in many ways, when the
time comes to discharge its obligations
that same community will resort to every
| method known to the law to avoid paving
its debts incurred in aiding the road. either
by way of subsidy or ock-subscription
The various State and Federal Courts have
been engaged for years in hearing and de-
| Gliding these controversies. So that the
method of State and municipal aid has
fallen into disrepute, and is no longer re-
| sorted to except in very few instances
The result is that the old charter method
and subsidy method have both become alb
| solete. But railroad construction still
goes on, and in California it has gone on
successfully under a new method for twenty
years. Whether this new method was de-
vlsed by Senator Stanford and his associa-
ties, or adopted by them, is immaterial :;
they pursue it, and have pursued it, with
| remarkable success. For that success. in
| the minds of many persons, fair-minded
men, who would scorn to do any one n
wrong knowingly, they have been criti-
cised, condemned, and in many cases
| charged with crime. We doubt if this is
right Let us fairly examine this new
method and judge it impartialy. If found
to b, lawful without blame or wrong.
give the Senator and his associates a i,lst
verdict; if found to be unlawful, contrary
to the rights OF the people or against pub
lie policy, then condemn this new method
and send it to keep company with those
already condemned and relegated to OBJ
livion.
In California, railroad corporations are
formed under general law, the provisions
of which are few and simple Five or
more persons may associate themselves to-
gether to form railroad corporation.
They formulate the articles and therein
must state the name of the corporation.
the kind of road intended to be constructed.
tuN paw iiOiu ~ NliiCil IL Is l0lpnueO
to be run, and all the intermediate
branches; the estimated length of the
road, and the counties through which it is
to run; that 81 900 per mile has been sub
seribed, the amount of the capital stock,
the number of shares into which it is di-
yided that at least ten per cent. of the
capital stock subscribed has been paid in
to the Treasurer of the intended corpora
ton. Having formulated the ARTICLES,
signed and acknowledged them, and paid
ten per cent. of the amount subscribed.
and filed the articles in the offices desig-
mated by law, the corporation is full
fiedged, clothed with all rights, powers,
franchises and privileges of railroad cor
poration.
Now to illustrate the new method of
building and equipping railroads, we will
suppose that Senator Stanford and his
associates have conceived the idea of build
ing a railroad one hundred miles in
length. They thereupon create the cor
poration by complying with the provisions
of the laws and fix the capital stock at 81
100000. Say that FIVE subscribers each
subscribe for 200 shares, or $40, 900. aggre-
eating 100000, which is one thousand